Sen. George W. Della Jr., a Baltimore Democrat, said such games encourage excessive drinking, which leads to raucous behavior in city neighborhoods. A bill he introduced late last month would have outlawed any games that award drinks as prizes in city taverns.

You can file this under "evidence that democrats and republicans are the same."Hat Tip: Kipesquire

Earlier in the week, Jim Calhoun, head men's basketball coach for the University of Connecticut, received a question during a post-game press conference to the effect of: "Since you make the most money of all public employees in the state, and there's a state budget shortfall, do you feel you should give any of your salary back?" Calhoun's response has become well quoted-- "not a dime"-- and he proceeded to embarrass the reporter not for the question as much as the circumstances under which he asked it. Though it should be noted that he began to make the exact argument that needs to be made for the question at hand.

Well, now the Connecticut State Legislature has decided to get involved. Nothing can come of this on Calhoun's end other than keeping the issue in the news; had you told me last week about the events and asked how much I thought people would be upset, I'd have thought the public backlash would have been a bit more. It's been surprisingly a non-issue, in my opinion, anyway.

My thoughts:

- Along my theory of "legislatures should concern themselves with pointless activity, for that way they will stay clear of the economy," I'm pleased that they've decided to take up the issue.

- Calhoun began to make the proper argument to rebut the "you make too much and you should feel bad about it" argument-- namely, it's not the salary in absolutely terms that matters, but salary in light of the employee's productivity. If Calhoun makes $1.6 million yet brings in $12 million-- and those that have checked the figures find that $12 million is a fairly accurate representation of what the program brings in, perhaps a bit on the high end-- what's the problem? If you were running a company and you were in the portion of your cost and production curves such that each employee cost you about 1/8 of the value of his marginal product, then you hire more people.

- Granted, the production function for Connnecticut basketball is not that purely separable. There are other inputs besides a coach that play a role in the revenue generation process. However, Calhoun has been there for a while-- since 1986-- and any current infrastructure that leads to revenue generation can likely be attributed, if not solely, then largely to Calhoun. Therefore, it's not too much of a stretch to make the $1.6 million/$12 million direct comparison. That being said, what's his actual salary in accounting terms for the state? Couldn't you make the argument that he doesn't make anything at all-- and to that end, couldn't you also make the argument that he's the most underpaid public employee? What other Connecticut employee generates a net of $10 million for the state? That is the argument I wish he'd have continued with-- because if Calhoun proceeded correctly, he could have forced the questioning reporter to admit he was the more overpaid worker.

- Regardless of productivity, what aspect of wage contracts obligate the employee to give back parts of their salary should economic troubles ensue? Ironically, the private market has solved this just fine-- tie the salary to the performance of the company, and the most common example is a stock option plan. They weren't designed exactly for this situation, but the effects are still the same. Of course, the same people that think Calhoun should give part of his salary back are those that feel stock options aren't appropriate since they lead to-- gasp-- higher incomes. Not that stock options are viable for public employees...

Thursday, February 26, 2009

What empirical evidence do we have about the responsiveness of high earners to tax rates? What is the reliability of that evidence?

Since I did some research on this subject in my dissertation, here are some expanded thoughts. First, what are the challenges inherent to studying the income tax responsiveness of the "rich?"

Who are "the rich"? Survey's of the American public tend to say they are people over about $120,000 annual income. Regardless, it is a subjective definition, just as it is deciding who is "poor."

By definition, the rich are a small group of people. This translates empirically into limited degrees of freedom.

The "rich" tend to be difficult to characterize as a population. CEO's are different from elderly with a lifetime of savings, and are different still from professional entertainers.

How do you measure compensation? What is a CEO's compensation when they are paid in a mix of salaries, benefits, and uncashed stocks? Very difficult to deal with.

Do data sets accurately reveal their true behavior? For example, if you have multiple houses in multiple states, which house is your tax residence? Legally, it is whichever house you say is your house, and it is up to competing states to prove otherwise.

The Alternative Minimum Tax, if your dataset is after 2001, makes it tricky to tease out the behavioral consequences of a particular income tax policy.

Every paper tries to deal with these issues in one way or another and all have their individual limitations. While no one paper is convincing on it's own, collectively, they seem to converging on the same result...that the tax responsiveness of the rich is very high. For those interested in the literature, here are some good citations to check out:

Bakija and Slemrod. (2004). "Do the Rich Flee from High State Taxes? Evidence from Federal Estate Tax Returns." NBER working paper 10645.Goolsbee* (2000). "Taxes, High-Income Executives, and the Perils of Revenue Estimation in the New Economy." AER 90, p. 271-75.Goolsbee* (2000). "What Happens When You Tax the Rich? Evidence from Executive Compensation." J Political Economy, 108, p. 352-75.Slemrod (1998). "The Economics of Taxing the Rich." NBER working paper 6584.Ross and Dunn (2007). "The Income Tax Responsiveness of the Rich: Evidence From Free Agent Major League Baseball All-Stars." CEP, 25(4).

All of the above papers suggest that the tax responsiveness of the rich is very high, often dollar-for-dollar. The major paper I am aware of that goes against this is:

I believe Leigh's paper has been published in the National Tax Journal, but that is not the citation I have immediately in front of me.*Yes, the same Austan Goolsbee who was Obama's economic advisor on his campaign. Amusing.

Wednesday, February 25, 2009

If you are in favor of the war on drugs, you should like drug cartels. A successful cartel behaves like a monopolist -- that is, they restrict output to raise prices. Granted, they use violence to maintain their cartel, but hey, you're the one advocating a war here.

For those of us opposed to the drug war, the destruction of a drug cartel is just another demonstration of the ridiculousness and stupidity of American drug policy. Break up the cartel and lots of small competitors move in, causing the market quantity to increase as the price falls to the cost of supply.

You would think that, of all positions in the government, the Attorney General would be in perfect position to understand this. After all, not only does s/he oversee the DEA, but also the Antitrust Division within the Department of Justice. With the right hand the DOJ argues they encourage competition, high output, and low consumer prices by smacking down cartels (so they claim), and with the left hand they are keeping us safe from access to drugs by...smacking down cartels? How does that contradiction escape them?

U.S. investigators have wrapped up a major 21-month drug-enforcement operation aimed at crippling a powerful and violent Mexican cartel operating in the United States, Attorney General Eric Holder announced Wednesday....In two years, cocaine prices more than doubled, while purity dropped by a third, indicating enforcement efforts are having an impact, Leonhart said.

"The result [of law enforcement pressure] is less cocaine on the streets of the United States. That's why the price has been affected. That's why the purity has been affected," she said.

Or the cartel was trying to increase cocaine prices because...they are a cartel. Regardless, I'm sure your temporary supply disruption is a permanent one. Congratulations DOJ, your continued existence is a mockery of humanity.

Economists, I think, would have been rightly skeptical of a leaked list ex-ante. Why would a person with inside-information reveal this info, why not use it to buy all shares less than 1 for the actual winner and sell shares for the losers at any price above 0? The insider could have easily made a reasonable penny on such a move, and surely someone with inside information would have realized the dollar value of this information in betting. We can consider two possibilities:

The list was a ploy to get attention by someone with no inside information.

An insider used the list as misinformation, hoping other traders take the bait and allowing the insider to make even more profit.

So, before we look over the Intrade data, we must consider that noise, BUT it does not excuse the prediction markets performance if they "miss"*. These possibilities should be discerned by anyone, who traded on the market and discounted the information accordingly. So let's see how the market behaved by looking in-depth at one where the leaked list was right (Best Picture) and one where it was wrong (Actor in Leading Role)

Conclusion: My view of it is that the market did not react much to the leaked message as volume of trading and price level remained pretty constant. Furthermore, the most probable winner was the actual winner. Kudos to Intrade traders!

Best Actor - Leaked Winner: Mickey Rourke; Actual Winner: Sean PennConclusion: Like the leaked list, Intrade suggested that Mickey Rourke was most likely to win best actor, instead of communist Sean Penn (just saying). The most 2nd most probable winner still had about a 30% shot, based on the prices. Again, there seemed to be no response in price to the leaked list.

In general, I would say that knowing the leaked list was garbage ex-post, we can say that the prediction market accurately discounted its usefulness, as trading did not seem to react to the list. In the 8 event markets it posted, it assigned the highest probability to the eventual winners 7 times, but in these categories even the mostly incorrect list got 6 correct.

* I find it unusual that critics of prediction markets anoint them failure when the highest probability outcome does not reveal to be the true outcome. Prediction markets are not a crystal ball that tells you the future, they just ascribe a probability based on collective beliefs. The markets may have been right in assigning a high probability to a particular event, while still observing that when the event plays out the low-p event occurs.

CNN provides some state level data on the current economic state of the nation ahead of tonight's State of the Union address. Wyoming is leading the pack at 3.4% unemployment and 5.3% job growth since early 2007.

Here's some background on the State of the Union address. I wonder what the longest speech was?

If ghosts do indeed exist then there would still be no need to fear them, at least not any more than any living entity. If ghosts are rational economic actors then ghosts would have no incentive to severely disturb the living population as it is likely that the costs to the ghost of killing an individual outweigh the benefits.When a ghost kills an individual then that individual could then conceivably turn into a ghost and, as a ghost, annoy its phantom killer for an even longer time period than if left alive. A ghost would be much better off being annoyed by a living entity for the comparably short period of time of that person’s lifespan rather then to kill that individual and, by doing so, inducing that person to seek retribution in the afterlife. This paper provides research to show that ghosts are indeed rational actors and, as such, refrain from the practice of killing living entities. The paper concludes by discussing the impact that this result could have on the housing market.

The paper is chalk-full of interesting literature reviews:

For example, according to Sheppard (2008), European folklore reveals that ghosts are most attracted to travelers because they are usually traveling alone and do not have a support system such as family and friends nearby.[...]According to paranormal expert Susan Sheppard, “Many speculate the reason spirits come across as orbs (circular shapes) is that circles are the easiest way for energies to assume physical shape” (Sheppard, pg. 110). This is saying that when ghosts do choose to manifest themselves, they tend to do so in the easiest or least costly way possible. This provides evidence that ghosts are acting with some concept of a cost-benefit analysis dictating their behavior.

I actually saw the new lineup Smashing Pumpkins last fall in an acoustic setting; I have heard spotty, at best, reviews of their live performances, and the set didn't do a lot to modify that viewpoint.

I'm listening to the pleasantly under-appreciated Gish right now, updates to follow throughout the day...

Gish: “Crush” is a great effort; many people are quick to point to the ability of the Pumpkins to use a wide range of effects on their later albums to create a fuller effect, but even Gish has a great sense of feel and very appropriate harmonizing. I wrote earlier that, in general, alternative music of the early to mid-1990s were collections of outstanding songs as opposed to collections of great albums. On the whole, the Smashing Pumpkins were probably the best at creating albums amongst the group.

D’arcy Wretzky is a very underrated bassist and carries portions of Gish; “Suffer” is a good example.

I believe that I read at one point that Gish came out around the same time as Nevermind, and therefore didn’t get a large amount of appreciation at the time. It’s certainly stronger than it gets credit for; many people believe that the Pumpkins as we know them started with Siamese Dream, but that’s simply not the case.

“Day Dream” has a Beatles feel to it.

Gish is more middle of the road than I remember; I'd say, easily, that it's the most conservative of the albums, though Adore is clearly #2 and everyone seems to miss that point when it comes to that album. But that's later in the day...on to Siamese Dream.

Siamese Dream: Siamese Dream is enough to establish a career on, and would be known now to the Pumpkins as their Ten or Nevermind if it weren’t for them topping themselves impressively on their subsequent double album. Corgan is a very good songwriter though I can’t sign on with him like I can with some other effective writers of the period; I’ll attribute it to personal preference. Corgan, I believe, is also one of the few singers that also plays lead guitar. He also played all of the bass parts on Siamese Dream. His voice is shrill for effect but I’d say both Layne Staley and Axl Rose had similarly unique voices that used them a lot better.

“Rocket” is particularly strong, though if we’re talking about making effective albums, which they do on the whole, the jump to “Disarm” just doesn’t work. “Cherub Rock” may well have the most recognizable instrumental introduction of the period. (Others? I’m drawing a blank here.) “Soma” has a great guitar line throughout, something the Pumpkins are not particularly known for. “Geek USA” is as underrated as “Today” is overrated.

I’ve always thought James Iha was overrated. I’m appreciating the bass lines today more than anything else, both on Gish and here on Siamese Dream, they are very very well done, I don’t remember enjoying them this much before, it’s very pleasant.

Thursday, February 19, 2009

I have had lots of informal conversations with students and faculty around SPEA about the green technology investment provisions of the stimulus bill. With all that new government spending on green tech, will we get more grants for research? Should we hire more faculty in anticipation of getting a piece of all that spending?

One of the more difficult points to convey in these discussions is how "crowding out" works, and why it can actually result in less spending on green tech than what is in the stimulus bill. I think this might be of interest to non-economist readers of this blog, so with maximum simplicity, let me try and articulate the thought experiment to understand the crowding out phenomenon.

Suppose instead of thinking about some generic market called "green technology," we were thinking about seats on an airplane. These seats are, in a sense, auctioned off to potential passengers (who have travel options besides getting on this one particular plane), and a set of prices emerge for these seats. Now suppose P-diddy, who recently gave up his private jet, decides that he is going to purchase half the seats on the plane because he doesn't like crowded planes and long waits. To do this, he must "outbid" everyone else who would previously have ridden the plane in his absence.

Has the introduction of P-Diddy increased total spending on this plane's seats? Yes. The more relevant question is, did the amount of spending on plane seats increase by the amount of P-Diddy's spending? No, because the other half of the passengers who are now pursuing a different option, would have spent money on the plane seats too, had P-Diddy not showed up. These passengers who would have spent money to fly on the plane have been "crowded out" by P-Diddy's arrival.

So, when thinking about it in this generic market thought experiment, it becomes an empirical question as to how much crowding out will actually occur. Thinking about the administration of this spending though, further fogs the issue. Rather than purchasing resources for "green technology" generally, they are put in the position of purchasing particular types of green technology, and therefore picking against other types, including those that have not yet been discovered.

Again, lets simplify this by thinking of the market for green technology consisting of two submarkets: Windmills and Watermills. They have many resources in common, so the emergent price of the resources needed in each of these submarkets are heavily dependent on each other. So the introduction of a new buyer wanting more Windmills not only increases price of resources for Windmills, but also for Watermills. As a result, the previous buyers will observe an increase in the cost of both types of technologies, and will scale back their investments in each. While the new buyer will likely have increased total spending on Windmills, it comes at the expense of not only previous buyers of Windmills, but also ALL buyers of Watermills. So spending in one submarket crowds out the other submarkets as well, and it becomes even less clear that the new buyers spending will have actually increased total spending on the resources.

Much ultimately depends on the ability of new resources to shift out of non-green technology and into green technology. The greater this ability, the more likely that crowding out will be less of a problem for total spending on green tech. In the airplane example, it would depend on the ability of the airline industry to make new planes available for those who were crowded out by P-Diddy.

It's an empirical question, but it is mistaken to think of the stimulus bill investment of $x on green technology as new or additional total spending. The real effect will be $x-$c, and only time will tell us how big that crowding out effect is on $c.

Taxation is voluntary, according to Harry Reid, because of all the deductions and the fact that employers do not do all of the withholdings for you. If the perspective is that taxation is voluntary, then perhaps we can make sense of why so many of Obama's appointees seem to have not paid their taxes.

CEOs have a potential conflict of interest when their company is acquired: they can bargain to be retained by the acquirer and for private benefits rather than for a higher premium to be paid to the shareholders. We investigate the determinants of target CEO retention by the acquirer and whether target CEO retention affects the premium paid by the acquirer. The probability that a CEO is retained increases with a private bidder, the performance of the target, and with the fraction of target shares held by insiders. Regardless of the bidder type, we find no evidence that the premium paid is lower when the CEO is retained by the acquirer. Strikingly, the target stock price increases more at the announcement of an acquisition by a private firm when the CEO is retained than when she is not. This result holds whether the private acquirer is a private equity firm or an operating company and for management buyouts.

At first, I was surprised by this result, but perhaps not bargaining with the acquirer for greater private benefits is why they get to keep their jobs in the first place. If you were buying a new business, you would probably take how the management negotiates the acquisition as a signal of their future productivity on your behalf. If the management tries to do what is in the interest of the shareholders when it is counter to their self-interest, then those are the kind of people you would like to retain.

To many observers, the current recession provides compelling circumstances for renewed fiscal policy activism. But the strong support for fiscal policy intervention reflects a renewed belief in policy activism that had already appeared before the present crisis. However, the recent debate about possible fiscal policy interventions suggests that we are still relying on the approaches to discretionary policy used in past periods of policy activism. It is not surprising that there have been few advances in discretionary policy design, given the lack of favor such policy suffered over many years. But if we are going to practice fiscal discretionary policy on a large scale, then more attention to policy design is sorely needed.

This is a very short, and easy to read paper. I thought he might point to new macro studies that explain the renewed lust for fiscal policy, but the interest is more in the policy arena, where he suggests 3 factors that seem to have played an important role in fiscal activism:

The weakening of automatic stabilizers due to the indexation of income taxes and reduction in marginal tax rates.

The "evolving" view that the Lucas critique is not absolute when there are nominal price rigidities or liquidity constraints.

Tuesday, February 17, 2009

At the time, the businessman, identified only by his last name -- Fan -- was married and had four other mistresses, according to the Peninsula Metropolis Daily newspaper in Qingdao.

The women knew of one another, but none elected to break up with the man and give up their rent-free apartment and a 5,000 yuan ($730) monthly allowance, the reports said.

When the economy soured, the businessman apparently decided to let go of all but one mistress.

He staged a private talent show in May, without telling the women his intentions. An instructor from a local modeling agency judged the women on the way they looked, how they sang and how much alcohol they could hold, the Shanghai Daily said.

The judge knocked out Yu in the first round of the competition based on her looks.

If you read the story, you will see that this guy got at least the minimum of what he deserved.

Sunday, February 15, 2009

Big companies are like communist countries - we all know how well communist countries worked. At some point they fell apart, not because the leaders were dumb, but because nobody would tell the leaders at the top, who had to make decisions, what decisions to make.

Why we trust these buffoons to run so many aspects of our lives, I will never fully understand. From TIME:

Why does it matter who oversees the census? In very general terms, Republicans would prefer to err on the side of under-counting and Democrats would prefer to err on the side of over-counting. The options can yield very different numbers for demographic groups and localities — and they have significant political and policy implications. This most recent skirmish is more manufactured than real, the result of willful misunderstandings. But it has its roots in an ongoing battle over whom the census counts — and how.

Despite its self-granted monopoly in education, government agencies cannot even count.

Saturday, February 14, 2009

TPS mid-major supporter Rob Holub sends along this interesting read, a mock-NCAA tourney selection run by the NCAA that gives some insight into a process that few seem to have a good amount of knowledge about yet everyone criticizes endlessly.

I was thinking about the issue of collective decision making the whole time, and the author-- who may or may not have any (public) economics background-- hits it right on the head at the end:

I think it's an error in human wiring that we're capable of putting the acts of collectives on par with those of individuals; many are comfortable considering the decisions of groups as coming from a single granular point, and not from the complex internal-debate engines they really are. 'Congress,' for instance, or the 'shareholders of Ford,' or the 'Pawtucket City Council.'"

It's an interesting read as a college basketball fan, and equally as much so as a student of the trials and tribulations of the process of making group decisions.

Interesting fact from the reading: It takes roughly as long to produce the brackets as time to play all 64 tourney games, as scheduled by the NCAA.

Friday, February 13, 2009

Software giant Microsoft is offering a $250,000 reward for information leading to the arrest and conviction of hackers behind a powerful computer virus that could lead to millions of PCs being hijacked.

Thursday, February 12, 2009

Let me couch this post in the following way: I've always been competitive. I don't know if it was because I played sports through high school or why I played sports through high school, but it's nonetheless true. While taking a full slate of classes during my senior year at Claremont, finishing my senior thesis and finding employment, I also took it upon myself to teach myself how to play effective checkers since the kids at the camp where I worked the previous summer had little trouble beating me. I don't need to actually play for real money to stay up all night winning a poker tournament amongst friends.

So please excuse me when I like to look at birthdays as a competition.

Irrationally, I like to think about the subjective possibility of being the "best" person born on your birthday. My birthday is November 3, and I've got some decent competition, though primarily in the entertainment industry. Dolph Lundgren, of Rocky IV fame, shares the same day of birth as me, as does Dennis Miller. Michael Dukakis is about the only non-entertainment competition that I've ever found. Roseanne Barr and David Letterman's son were born on November 3 as well. Bob Feller was born on my birthday; Bobby Thompson, who hit the Shot Heard Round the World, as well. Phil Simms shares the day, too.

Here we have significant portion of the population that vote for public provision of goods and services with no skin in the game. In fact, part of the reason they are asking for it is likely because they do not share in the cost.

So the question is, what will cutting the payroll tax do to the demand for more public provision over the long-run? Unless there is a complexity in the income tax code that I am not aware of, my thinking is that we would be further removing payers from the system, which might be a hidden cost we want to carefully consider before cutting the payroll tax.

Wednesday, February 11, 2009

TPS friend Joab Corey sends along news from the Kentucky state legislature, which is looking to regulate college textbooks. Here's a news story and here's the text of the bill. The goal, ultimately, is to lower the prices of textbooks. Let's take a look at the bill:

- Directly from the bill:

"It is the intent of the General Assembly to encourage faculty, students, bookstores, book distributors, publishers, postsecondary education institutions to work together to contain costs of essential college textbooks and supplemental materials for students in ways that still maintain the academic freedom of faculty to identify high quality course materials for students."

Objectively, this is no different than saying "...to work together to raise costs of essential college textbooks..." So anything working towards the goal of lowering textbook prices is inherantly subjective. Obvious, yes, but still worth stating. There is no overarching "good" to be achieved with this end in mind, nor any increase in welfare.

- That being said, let's see if what they propose achieves their subjective ends.

"No later than the 2009-2010 fall academic term, each Kentucky public postsecondary education institution shall implement a policy establishing a deadline for faculty adoption and public posting of the International Standard Book Number and retail price for all courses within the undergraduate course schedule."

This won't do anything to change prices, though it may do so indirectly. Failure to comply will result in "penalties to the faculty" or "fiscal relief for the students who are victims of late notifications," and since professors tend to be a bit lazy in providing book information, I can see some imposed penalties happening. And do you think departments are going to fine their professors? Students could benefit from a propensity to disobey the imposed rules, but in no way does providing book information save anyone money. At all. (Love the victims line, though.)

- What about bundling?

"No later than the 2009-2010 fall academic term, a publisher that sells a college textbook and any supplemental material in a single bundle in a college bookstore in Kentucky shall also make available the college textbook and the supplemental materials as separate and unbundled items with each priced separately."

The idea here is that students end up purchasing bundles of textbooks that they otherwise wouldn't need. A few thoughts:

1) Professors, in my experience, both as an instructor and a student, don't blindly assign books.

2) What about the possiblity that bundling-- and stay with me now-- actually saves the student money? What if these companies can lower the prices by bundling goods and sell more books? Remember, books may be required for a class, but that's by no means a guarantee that all students buy them. I'd say that the elasticity of textbooks is fairly highly; reducing price by $5 or $10 might have some significant revenue gains, and companies recognize that.

3) What about the possibility that forcing companies to unbundle their products-- and stay with me a little more-- could charge higher prices for all of their goods, sold separately, to compensate for the increase cost in offering these goods? Wait-- legislation that intends to do something actually ends up doing just the opposite?

- And what about all of those editions that seem the same?

"No later than the 2009-2010 fall academic term, publishers shall publish substantial content revisions between new editions of college textbooks from the earlier editions of the same textbooks in order for faculty to make informed adoptions and for students to determine whether it is necessary to purchase a new edition if it is adopted."

Ah, the ambiguity of law. If you teach statistics, "substantial content revisions" could be nothing more than new questions to address the same subject matter. After all, that hasn't changed much over the years. Then again, if you teach, say, Philosophy, maybe you need entire sections rewritten in order to provide a different viewpoint, or maybe different subject matter entirely. How do you judge "substantial?" It's a great way for the Kentucky state legislature to allow the state to selectively enforce and impose sanctions upon those they wish.

So, ultimately, not only is the legislation suspect in motivation, but even given this motivation, it is not clear in any regard how its provisions will achieve its ends.

House Bill 1656, sponsored by Rep. Terri Austin, D-Anderson, would rely on $500 million from the trust fund created by the $3.8 billion lease of the Indiana Toll Road, plus $250 million from federal highway funds that the state has and $250 million from money the state expects to get from the federal stimulus.

The money would be divided among Indiana counties, cities and towns over the next two years. In addition, the bill would create a $20 million program to help local governments hire engineers and consultants to design projects, and would provide money for two-year, $6,000 grants so that out-of-work Hoosiers can return to college for job training.

The bill also would steer business to Indiana companies, requiring the use of Indiana steel and allowing agencies to spend 15 percent more in most cases in order to award contracts to Indiana companies instead of out-of-state firms with lower bids.

Moving your wallet from your pants pocket to your coat pocket will not make you wealthier. Especially if you have to burn money in the process of doing so.

Tuesday, February 10, 2009

I have been really hard on the EPI in the past for giving people the title "Economist" and lending our credentials to moronic claims and misleading statistics, so it is only fair that I give them credit when they let an actual economist present an actual claim on the economy. The EPI has an economist quoted on CNN who actually holds a PhD in economics:

But the risk of doing nothing is far greater than the current price tag, some economists contend.

"The single worse thing that can happen when the economy gets mired down is to sit on the sideline, pull back, start acting like a scared household, because that's the recipe for a recession that lasts a decade rather than three years," said Josh Bivans of the Economic Policy Institute.

I don't think that is the recipe or that it is the single worst thing, but whether or not it is an important ingredient can be well argued. Congrats to the EPI!

LONG BEACH, California -- Students at the MIT Media Lab have developed a wearable computing system that turns any surface into an interactive display screen. The wearer can summon virtual gadgets and internet data at will, then dispel them like smoke when they're done.

The blame game over the response to Katrina was, rightly to some extent, put mostly on Bush for either being uncaring or bad at making appointments. As demonstrated by Jason Taylor at Reason, the problem is the incentives of the system, not who you put at the top:

The ice storm that slammed the American mid-south in the last weekend of January and then moved onward to the East Coast has left an estimated 1.3 million people without power. And nowhere was hit harder than Kentucky, where some 700,000 people lost electricity and 24 deaths were attributed to the storm. Yet President Barack Obama only declared the state a major disaster area this week. What took so long? Where is the presidential compassion for the victims of this tremendous disaster?

The answer is that nothing is wrong and President Obama surely feels for each and every person hurt or put out by the storm. The reality is that even after the emergency management reforms allegedly implemented after Hurricane Katrina, help from far-off Washington still does little in times of fast-moving crisis. This view may be heresy in the age of federal bailouts, but it is still true.

The story is not without its heroes:

Enter David Strange, the enterprising figure the Associated Press calls the "generator man." Strange drove the hills and hollows of backwoods Kentucky delivering and setting up generators to those without power—at a $50 to $100 mark-up over retail. Willing customers included a dialysis patient and a powerless 80-year-old woman dependent on an oxygen system. They called him a "godsend," although Strange prefers "jack of all trades" or even "hustler." To Adam Smith, he would be recognizable as an agent of the invisible hand.

Sunday, February 08, 2009

You may want to check out the blog 4am. the best time of day to think. The author is Suzie Witmer, an MPA student from SPEA and former student of my economics class here. Suzie was always an engaging, inquisitive, and open-minded student, and based on her first (real) post that will be the case in her blog, which is on Massachusetts Health Care Reform.

Friday, February 06, 2009

But beyond the broad language of the Outer Space Treaty, we don't really have set guidelines for how we should treat microbial life on another planet, should we run across it.

But there are efforts to fix that:

That's why NASA planetary scientist Christopher McKay, in an article in this week's Science, suggests the need for a stronger policy that ensures all exploration of Mars be "biologically reversible" — meaning we would be required to effectively wipe away our footprints and remove any possibility of contamination, by leaving behind nothing that could foster alien microbial growth. Such a policy would be especially necessary if we discover that life on Mars has emerged independently from life on Earth — what McKay calls a "second genesis" (as opposed to Martian life that arose because of meteorites exchanged between Mars and a hospitable Earth, a condition in which the two planets would share a tree of life and contamination would be less of a concern). If there really were a second genesis on Mars, "contamination by even one Earth bacterium may be a serious issue of environmental ethics," McKay writes.

My first thought: "What a pointless thing to spend time working on!"My second thought: "Congress should devote all their attention to working on this issue!"

Almer's family is suing the Peanut Corporation of America, whose plant in Blakely, Georgia, has been identified as the source of the outbreak. The FDA is urging that every product produced there since the beginning of 2007 be thrown away.

Food safety experts said the underlying cause of the problem, however, is that the century-old system of regulation is broken. In this case, the experts said, the federal government failed to oversee the safety of products coming out of the Blakely plant and was slow to identify it as the source of the salmonella.

My complaint is that you cannot blame someone (i.e. the FDA/federal government) for something they could not be capable of doing. For example, I do not blame Danny Devito for not being able to dunk a basketball. To ascribe blame, it requires one to have the responsibility and capability, neither of which fall at the feet of the FDA when it comes to food poisoning.

Both responsibility and capability do lie at the feet of the Peanut Corporation of America (PCA), so they are the only ones deserving of blame. Accidents happen, but it remains imperitive that PCA is held accountable for upholding their end of contracts, which probably indicate that their products be safe for consumers. They have no incentive to allow salmonella poisoning to occur, a big incentive to stop it, and part of that incentive derives from the ability of those wronged to have legal recourse, which we see already exists by the Almer family suing.

PCA may have knowingly taken a risk and committed fraud in the process, and if they did they deserve to suffer the consequences via lawsuits and criminal charges, but that does not imply more regulation is needed.

Since those employed by the federal government are far short of omnipresent beings with perfect knowledge of the future, it is complete nonsense to suggest they should have prevented this outbreak. You simply cannot regulate away misdeeds or mistakes, only allow for legal recourse in their occurence. The acknowledgment of their own inabilities to regulate "effectively" coupled with the declining incidence of food borne illnesses is suggestive that they are not a very important or even necessary player in the game for public health and safety. The FDA is probably trying to take blame so that they can be granted greater funding/power/prestige in the federal bureaucracy (zero-sum) game. Blaming the FDA is an implicit grab for more responsibility, and will simply wind up taking it away from the PCA, who could use the FDA for cover in a defense.

The College Board has released its fifth annual Report to the Nation; the data is remarkably robust, across state, test, and ethnicity lines. Maryland leads the country in percentage of students who have taken an AP exam at 37.2%, Louisiana is last at 8.4% and that can't be attributed Katrina.

So the idea is that we should cap the pay of executives at companies receiving federal money during the bailout. It's a good thing this didn't spread to all executives-- of course, that would be ridiculous, but we're living in ridiculous times and, sadly, you can't rule anything out.

Let's assume that executives know their worth to a company; this idea can only force executives from their positions. And let's assume that this worth is reflective of their actual worth; so we're going to force the people who can run these companies best from their positions at a time when they probably need good leadership more than ever?

Not that it would justify the amount of spending that seems to be coming in the near future, by any means, but what if there were a rule that dictated that all stimulus/bailout funds allocated to companies were used solely for executive compensation? If we offered Donald Trump $45 billion to run Citigroup, do you think the company would be any better off? I'm not saying that Trump would be the right person...but for $45 billion, could you generate a pool of executives that could offer a brighter future for these companies? I don't know. But it's interesting to think about.

And what about the compensation of the president? By the opinion of people ordering such measures, is our country a well-performing company? It's been taking tax-payer stimulus support for over 200 years. Executives in the aforementioned companies are going to be scrutinized for holiday parties; what about the scrutiny for this? Last month, Citigroup was forced to cancel a corporate jet that was set for delivery; does our president have a corporate jet he uses for the job?

Notice any trend? The vast majority of the discrepancies between the opening lines and the closing lines are adjusted downwards, i.e., you as the bettor get more return for the same bet placed initially after the odds come out as compared to right before the game starts. And the bets with large swings in odds are all downwards-- the only upwards movements were two Cardinals players from 20-1 to 22-1, and then the field from 5-1 to 6-1.

1) Why the movement in one direction? Perhaps the book didn't have a solid foundation upon which to open bets. If that's the case, however, why not open the odds too low and then adjust upwards? Are they trying to pull extra traffic to the site with appealing odds?

2) Is the structure of betting on just one player from a pool lend itself towards movements in this direction? Parimutuel pools handle this just fine; do we see the same general downward pattern in similar, non-parimutuel pools-- like the Kentucky Derby? I'd suspect not, though the betting volume (Derby vs. 1st touchdown pool) in the Derby would be a lot larger.

3) Don't underestimate the importance of the field moving from 5-1 to 6-1. That could well even out books.

4) Large movements could also be indicative of small amounts of money being bet overall, in comparison to a few relatively large bets. Would sportsbook.com splice the bets that way? Or would they view all 16 pages of props as the pool they want to make a profit on?

Anything else? For the record, the first touchdown in Sunday's game went to Gary Russell, paying a respectable 18-1.

Monday, February 02, 2009

If you are looking to nudge the little ones, consider reading them DOLLAR$ AND $EN$E, from The Berenstain Bears series published by Random House.

Story: The Berenstain children cannot control their spending. While shopping, Brother and Sister Bear routinely beg their parents for money so that they can by frivolous items like a wedding dress for a "Bearbie Doll." Growing frustrated, the parents decide to teach the children how to manage money.

First, the parents try the hands-off approach of giving the cubs a weekly allowance:

"It will be up to you to manage it--to spend it or save it as you see fit."

To their parents' chagrin, the cubs turn out to be a Keynesian dream. Each week they are paid their allowance, the cubs immediately run out to the store and blow through their money quickly, buying candy, bubble gum, cards, and other toys they quickly tire of, then spend the rest of the week moping about.

Of course, the children think the solution is a bigger allowance. However, Mama Bear instead responds by giving her cubs some extra checkbooks from her old bank.

"But instead of giving [the allowances] to [the cubs] at the beginning of each week so that you can go out and spend them before they burn a hole in your pockets, we're going to hold them for you. Then when you want a little pocket money or want to buy something, you write out a check."

The new checkbook system is a success for the parents. Immediately, the cubs start delaying their present consumption for greater future consumption:

"[Sister Bear] decided to save her first week's allowance and buy the Bearbie wedding dress with her next week's allowance so she would still have ten dollars left."

The Economics Lesson: This is a classic example of Libertarian Paternalism, as advocated in Nudge by Cass Sunstein and Richard Thaler. By changing some default in the "choice architecture" of a decision society might achieve welfare improvements. The paternalism lies in letting government (or possibly an employer) decide the default path for the citizen. The libertarian aspect is that the citizen can choose to step off the path and follow a different pursuit. For instance, Sunstein and Thaler often note that when employers automatically enroll their employees into a 401K, they have significantly higher savings rates and greater economies of scale than if they let them voluntarily enroll. Default enrollment in organ donor systems have similar consequences. Since employees and donors can opt-out, it is argued that changing the default is not an act of coercion, but is rather "soft" or "libertarian" paternalism.

On a smaller note, the economic model of the consumer choosing among bundles of goods subject to a budget constraint is displayed throughout. Brother Bear demonstrates his marginal rate of substitution is 10 baseball cards for one baseball book. The story also demonstrates various functions of money, such as store of value and medium of exchange, but there are better childrens books for that lesson.

The latest in the annual budgetary saga that is the California state government. Note, too, the comments at the bottom of the page; they are priceless. A slice:

"Those of you who have the means and are whining about a slight delay in the state's money should be ashamed of yourselves. People's needs are not being met and you're complaining about the timing of checks? This is precisely why we have elected Obama, to appropriate the wealth in this country in accordance to a common good, rather than in in the vein of the Cheney, Bush Reagan selfish greed manifest. If you loved this country and our president, you'd tear the IOU up when you received it."

"Which brings me to the point of why the federal government doesn't simply print more money and give it the states...[a]fter all we need to save capitalism..."

You can't make this stuff up. It seems to me that comments on certain sites tend down this path, yet not on others. Are they generally news sites? Can we compile a list of hilarious comment websites?

Last week was Soundgarden, today is Alice in Chains. We'll go in order of albums, and I'll update throughout the day. So the plan at the moment goes Facelift, Sap (that one's short-- only 5 songs), Dirt, Jar of Flies (also short-- only 7 songs), and their self-titled release.

If I had to name one band that I will never get to see perform that I'd love to see, I think this one tops the list. Staley's voice was (is) unapproachable; at full health, he has to be the best singer of alternative music. Jerry Cantrell is underrated in music today, both as a performer and as a song writer, though his solo work pales in comparison to AIC (just about anything would).

Facelift: Alice in Chains is remarkably consistent; "Bleed the Freak" and "We Die Young" are excellent. Cantrell might be best on "Love, Hate, Love". I'm convinced as I work my way through this album that there exists few, if any, people that could sing this album and do it even a modicum of justice. Maybe Sebastian Bach in his day.

Facelift: The second half of the album wanders a bit; most of it is good, "Confusion" is impressive.

Sap: Sap is the lighter version of Facelift; not sure if they picked up an acoustic guitar at all during Facelift. The harmonizing is a big contrast compared to Facelift, and something they won't get back to until Jar of Flies.

Dirt: Certainly their most popular album; can't really go wrong anywhere through it, though "Rain When I Die" and "Junkhead" are Layne classics. Especially "Rain When I Die" - if I'd have to pick one song where he especially belts it out, that's the one.

By the way, if you're not familiar with Alice in Chains and want to get a sense for the lyrics, check out all of the song titles I've referred to thus far-- "Confusion" is probably the most uplifting.

Jar of Flies: I mentioned in the Soundgarden post that albums, as opposed to collections of songs, weren't the strength of alternative music. This album stands apart as an album, not a grouping of songs. (Mellon Collie by the Pumpkins probably deserves consideration here, too). It's only 7 songs but an achievement not only for its aura but it's stark departure from the Alice in Chains we knew up until that point. This album very much has an OK Computer feel to it, only more blues-y, but most people don't realize that Jar of Flies came out three and a half years before it. Well ahead of it's time.

Alice in Chains: By this point, Staley's voice is a shadow of what it used to be, and the album is worse for it. Still, the Cantrell-driven album is a solid effort. "Sludge Factory" and "Again" are good up-temp songs, "Heaven Beside You" and "Over Now" are still-radio-popular acoustic efforts.

Remember, too, that Mad Season had Staley on vocals, though in his later years-- time-wise, Mad Season came after Jar of Flies.

Sunday, February 01, 2009

In all the talk about tonight's game, I'm confident that it'll be a good one for a reason I haven't heard mentioned yet-- both of the quarterbacks have played in the Super Bowl before. I wonder if history supports the theory?

By my estimation, here are the Super Bowls in which both QBs had some Super Bowl experience:

So the 1990 game was a blowout, if I remember correctly the 1994 game was not indicative of the final score, and the 1974 game wasn't great one way or the other. The 1976 game was a very good game, and 1979 and 1998 were two of the best Super Bowls of all time. Not a landslide one way or the other, but I think there's reason to believe that the game could be a pretty good one ex ante.

I was surprised at how many Super Bowls have had one QB playing with experience; just eyeballing the list, I believe it's around half.